Agreement of Sale: ‘The end’

To you children of the 60s, the title may harken to the haunting lyrics and melody of The Doors song of the same name. But for those of us mired in the earthly pursuits real estate sales, a different reference is intended. This article explores when an agreement of sale has ended, finished, kaput.

Settlement: No matter how difficult it may have been to get there, the best way to end most agreements is at the closing table. Funds and title are exchanged, parties are relieved or excited, and some folks make money.

Unilateral Termination: This means nothing more than the agreement being terminated by one of the parties. The standard agreement, in several locations, gives just one party the right to terminate.

The mortgage contingency clause gives the seller, and only the seller, the right to terminate if the buyer’s mortgage commitment is not received by a certain date. The inspection contingencies give the buyer, and only the buyer, the right to terminate if inspection results are not satisfactory to the buyer. Buyers may also terminate on their own, and without the seller’s permission, if the zoning classification (except for single-family dwellings) is not stated in the agreement or if the seller is in receipt of assessments or certain notices that seller will not comply with before settlement. Moreover, buyers may terminate if certificates of resale for a condominium or unit in a planned community is not to the buyer’s liking or even if a system or appliance fails and the seller does not agree to repair/replace it or credit the buyer with value, and so on.

When one party has a right to terminate the agreement, that party must do so in writing. In an earlier article, I suggested that a release may not be the appropriate document to use when terminating an agreement.

Bilateral Termination: This is a termination by agreement of both parties. No matter what the circumstance, a buyer and seller can agree to terminate the agreement. The termination may be accompanied by a payment from one party to the other, or no payment. If parties can agree to transfer real estate, they can agree to not do so. This form of termination doesn’t happen so frequently, but examples can be found without too much digging.

I know of a transaction where two days after the agreement of sale was executed, the seller suffered a stroke and moving would be a great imposition. The buyers were cooperative and agreed to look elsewhere. The house was not unique and the buyers had not yet made a mortgage application or suffered financial consequences. I am also familiar with transactions where a bilateral or mutual agreement to terminate was reached where one party paid the other to walk away from the transaction. Anything is possible when all parties agree.

Automatic Termination: Are there situations that trigger an automatic termination of the standard agreement? Indeed, there is a provision that brings finality to the agreement and it is found in Paragraph 5. Paragraph 5 of the standard agreement (Form ASR) makes clear that time for the performance of all obligations (settlement included) is of the essence. The Pennsylvania Supreme Court has ruled that when the time of settlement or performance of any obligation under the agreement is “of the essence,” or where equivalent words are used, compliance must be made by the specified date or a breach has occurred, even if the other party has not been prejudiced.

So settlement must occur on or before the date set by the agreement. Further, it is clearly stated in Paragraph 5(D) that the settlement date “is not extended by any other provision” of the agreement and may only be extended by mutual written agreement of the parties.

Put these provisions together and you have an agreement that absolutely terminates on the specified settlement date. Certainly, settlement dates may be mutually extended, but where an extension is not agreed to, the agreement of sale by its very words and with no further action by the parties, ends.

And as the concluding line in that song by The Doors says, “this is the end.”